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Christopher Lewis

The S&P 500 gapped lower to kick off the trading session on Monday, breaking through the 2200 level before bouncing again yet again. At this point, the market then turned around due to the fact that the Federal Reserve is likely to go “full tilt” with quantitative easing, as they are now looking to buy corporate bonds. That of course is a major turnaround in the attitude of the central bank, and therefore stock markets are trying to readjust their entire attitude.

S&P 500 Video 24.03.20

The initial rally of course was what people would expect, as Wall Street thrives on cheap money. However, the liquidity issue is only part of the problem, and as you can see the 2400 level brought sellers back in. When trading a financial crisis, the biggest clue as to when things are turning around is when a bad announcement doesn’t cause a bad reaction. For a while, good announcements will cause bad reactions just as bad announcement will. In other words, the fact that the Federal Reserve has seen the necessity of doing this probably has people concerned. Granted, it can support certain markets in the short term, but there is always the question “What does the Federal Reserve know that we don’t?” I believe this is what we are seeing right now, and therefore rallies are still going to be sold into going forward. I believe the 2400 level is resistance, followed by the 2500 level, and then possibly even the 2700 level after that. This has been a significant break down, but rallies at this point should probably be looked at through the prism of a “dead cat bounce.”

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